Assume that the reserve requirement is 20 percent.Also assume that banks do not hold excess reservesand that the public does not hold any cash. The Feddecides that it wants to expand the money supply by$40 million.a. If the Fed is using open-market operations, will itbuy or sell bonds?b. What quantity of bonds does the Fed need tobuy or sell to accomplish the goal? Explain yourreasoning.

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